Method For Structuring A Transaction

ABSTRACT

In one embodiment the present invention relates to a method for structuring a transaction involving a first party having a long position in a security and a second party desiring to acquire short exposure to the security. In one example an agent or intermediary acts between the first party and the second party. In another example the first party and the second party deal directly with one another.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application is a continuation of U.S. application Ser. No.10/062,164, filed Feb. 1, 2002, which is a continuation-in-part andclaims benefit under 35 U.S.C. 120 of U.S. application Ser. No.09/883,001, filed Jun. 15, 2001. Each of the aforementioned applicationsis incorporated herein by reference in its entirely.

FIELD OF THE INVENTION

In one embodiment the present invention relates to a method forstructuring a transaction involving a first party having a long positionin a security and a second party desiring to acquire short exposure tothe security. In one example an agent or intermediary acts between thefirst party and the second party. In another example the first party andthe second party deal directly with one another.

For the purposes of the present application the term “an agreement”(such as an agreement between one party and another party) is intendedto include, but not be limited to, a written and/or oral: (a) agreement;(b) contract; (c) arrangement; (d) deal; (e) bargain; (f) covenant; or(g) transaction.

Further, for each term which is identified herein as “intended toinclude, but not be limited to” certain definition(s), when such term isused in the claims the term is to be construed more specifically as“intended to include at least one of the definition(s)”.

BACKGROUND OF THE INVENTION

Traditional stock loan transactions are typically carried out for anumber of reasons, including tax purposes, hedge purposes, and “short”sale purposes. A “short” sale is the sale of a security which is notowned by the seller with the expectation that the seller will buy thesecurity at a later date to “close out” the short position (as opposedto a simple sale of a security owned by a seller having a “long”position in the security). A short sale generates short exposure to theparty making the short sale.

FIG. 1 shows a cash flow diagram of such a traditional stock loantransaction. As seen in this FIG. 1, a Lender 101 loans one or moreSecurities 103 to a Borrower 105 (such as a broker) and receivesCollateral 107 in return. In addition, the Lender 101 pays to theBorrower 105 a Rebate 109 (i.e., a predetermined amount which may bepaid periodically and which may be a percentage of the value of theCollateral 107), and the Borrower 105 pays to the Lender 101 anIn-Lieu-Of Dividend 111 (i.e., a manufactured amount calculated tosubstantially mirror any dividends paid on the Securities 103 lent tothe Borrower 105 during the term of the loan). Further, the loan hasassociated therewith a Mark-To-Market Payment 113 (i.e. “marking asecurity to market” and then making a payment from the first party tothe second party or from the second party to the first party, dependingupon the price of the security at the time the security is“marked-to-market”). The Mark-To-Market Payment 113 is made periodically(traditionally daily) and is based on the current price of theunderlying Securities 103. The purpose of the Mark-To-Market Payment 113is to obtain a collateral payment between the Borrower 105 and theLender 101. Thus, the Mark-To-Market Payment 113 may be made from theLender 101 to the Borrower 105 or from the Borrower 105 to the Lender101, depending upon the price of the Securities 103 at the time theperiodic Mark-To-Market operation is carried out. Specifically, theMark-to-Market Payment is paid according to the following calculation:at the first point in time (“t”), the Mark-To-Market Payment is equalto: (1) the value of the security at the point in time the security waslent minus (2) the current value of the security at time t. At the nextpoint in time (t+1), the Mark-To-Market Payment is equal to: (1) thevalue of the security at time t+1 minus (2) the value of the security attime t. A similar calculation continues for each periodic Mark-To-MarketPayment.

In a related type of traditional transaction, such as shown in FIGS.2A-2C, short synthetic exposure is shown. Short synthetic exposure meansexposure that reflects an equivalence to the financial exposuregenerated by a short sale and typically employs derivatives. Short salesare typically used in trading strategies where investors seek togenerate positive returns when securities are dropping in value. Thereare four general types of trading strategies: (1) arbitrage; (2)hedging; (3) directional short selling; and (4) financing. Further,there may be other more complex strategies that incorporate elements ofthe basic strategies (e.g., tax trades, complex derivative trades, etc).More particularly, as seen in FIG. 2A, if a Broker 201 maintained a longposition in a desired security, such as Stock 203, the Broker 201 (via atrader) could enter into the long side of a short synthetic exposuretransaction (via TRR Swap 205) with the Hedge Fund 207 and sell theappropriate number of shares of Stock 203.

On the other hand, if the Broker 201 did not have the requiredunderlying position, then generating the short synthetic exposuregenerally involved two steps. As seen in FIG. 2B, the Broker 201 (viathe trader) would first buy the Stock 203 from an Investor 209 and enterinto the short side of the synthetic with the same Investor 209 (viaTotal Rate of Return Swap “TRR Swap” 211). In step two, seen in FIG. 2C,the Broker 201 (via the trader) would then enter into the long side of asynthetic with the Hedge Fund 207 (via TRR Swap 205) and also sell theappropriate number of shares of Stock 203 (similar to selling from along “proprietary” position).

The above described “short synthetic exposure” type of traditionaltransaction suffers many of the following disadvantages:

-   -   1) There may be multiple levels of purchases and sales,        generating transactions taxes, stamp taxes and broker fees and        commissions.    -   2) The transaction may expose the broker to foreign exchange        risk. For example, if currency controls were implemented, it is        possible that the broker could not repatriate the cash proceeds        of the sale, or generate local currency to “buy-to-hedge” or to        “unwind” (e.g., reverse) the transaction. “Buy-to-hedge” refers        to the purchase of an asset (e.g., property or a security        (including a stock or a derivative, for example)) to hedge an        exposure in the opposite direction. Further, the transaction may        involve underlying stock or it may involve a derivative or other        instrument. For example, a trader may have short exposure in a        convertible bond that converts into stock. The trader may elect        to “buy-to-hedge” the underlying stock of the convertible, in a        ratio that correlates with the conversion ratio of the        convertible bond.    -   3) Issues similar to 2 above might arise if the broker were        prevented from trading for some reason.    -   4) The transaction may impact the broker's balance sheet (when        the broker acquires the securities the broker is essentially        entering into a hedge).    -   5) The transaction may have significant reg-cap and cash-cap        impact (i.e., the transactions may require the broker to use        either regulatory capital (i.e., a minimum amount of capital        which is required to be maintained to trade on a certain        exchange) and/or cash).    -   6) Unless the transaction is “reset” (by adjusting the swap        price after the initial sale by the investor, for example),        mark-to-market exposures may arise. For example, if counterparty        A was long the synthetic exposure and counterparty B was short        the synthetic exposure, if the assets(s) represented by the        transaction went up in price, counterparty A would have the risk        since counterparty B would have an obligation to pay        counterparty A at some point in the future. If the assets(s)        went down in price, the opposite would be true.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 shows a cash flow diagram of a traditional stock loantransaction;

FIGS. 2A-2C show block diagrams of a traditional short syntheticexposure transaction;

FIG. 3 shows a block diagram of an embodiment of the present invention;

FIG. 4 shows a block diagram of an embodiment of the present invention;

FIG. 5 shows a block diagram of an embodiment of the present invention;and

FIG. 6 shows a block diagram of an embodiment of the present invention.

Among those benefits and improvements that have been disclosed, otherobjects and advantages of this invention will become apparent from thefollowing description taken in conjunction with the accompanyingfigures. The figures constitute a part of this specification and includean illustrative embodiment of the present invention and illustratevarious objects and features thereof.

DETAILED DESCRIPTION OF THE INVENTION

As required, detailed embodiments of the present invention are disclosedherein; however, it is to be understood that the disclosed embodimentsare merely illustrative of the invention that may be embodied in variousforms. The figures are not necessarily to scale, some features may beexaggerated to show details of particular components. Therefore,specific structural and functional details disclosed herein are not tobe interpreted as limiting, but merely as a basis for the claims and asa representative basis for teaching one skilled in the art to variouslyemploy the present invention.

In one embodiment a method for structuring a transaction is provided,comprising: obligating an agent to act between a first party and asecond party; obligating the first party to sell a security to thesecond party; obligating the second party to pay an in-lieu-of dividendto the first party; periodically marking the security sold by the firstparty to market; and obligating the first party and the second party tounwind the sale of the security.

In one example the step of periodically marking the security sold by thefirst party may further comprise periodically making a marking paymentfrom the first party to the second party or from the second party to thefirst party, depending upon the price of the security at the time thesecurity is marked-to-market.

In another example short exposure to the security may be provided to thesecond party based upon the sale of the security by the first party.

In another example short exposure to the security may provided to thesecond party, through the agent, based upon the sale of the security bythe first party.

In another example at least one of the in-lieu-of dividend and themarking payment may be paid through the agent.

In another example at least one of: (a) the identity of the first partymay not be known to the second party; and (b) the identity of the secondparty may not be known to the first party.

In another example the step of obligating the first party and the secondparty to unwind the sale of the security may include obligating thefirst party to repurchase the security from the second party.

In another example the method may further comprise obligating the agentto at least partially indemnify the first party against a loss.

In another example the loss may be caused by the second party failing tocarry out an obligation under the transaction.

In another example the first party may retain the proceeds of the saleof the security.

In another example the method may comprise obligating the first party tomake a payment to the second party.

In another example the payment may be paid periodically using a periodselected from the group including: a) daily; b) weekly; c) monthly; d)quarterly; e) semi-annually; f) annually; and g) at the completion ofthe transaction.

In another example the in-lieu-of dividend may equal at least part ofthe value of any dividend paid on the security sold by the first party.

In another example the in-lieu-of dividend may be paid periodicallyusing a period selected from the group including: a) daily; b) weekly;c) monthly; d) quarterly; e) semi-annually; f) annually; and g) at orabout the period which is correlated with the payment of any dividendpaid on the security sold by the first party.

In another example the marking may be carried out in U.S. dollars.

In another example the marking may be carried out periodically using aperiod selected from the group including: a) daily; b) weekly; c)monthly; d) quarterly; e) semi-annually; and f) annually.

In another example security may be selected from the group including: a)at least one fixed income security; b) at least one warrant; c) at leastone stock; d) at least one option; e) at least one convertible bond; f)at least one non-convertible bond; and g) at least one future.

In another example the security may be selected from the groupincluding: a) at least one security associated with a single stockissue; b) at least one security associated with a basket of stocksformed of a plurality of stock issues; and c) at least one securityassociated with a stock index.

In another example the first party may have a long position in thesecurity.

In another example the first party may be an institutional investor.

In another example the second party may be a hedge fund.

In another embodiment a method for structuring a transaction carried outamong a first party, a second party, and a third party is provided,comprising: arranging a first agreement between the first party and thesecond party, wherein the first agreement: i) obligates the first partyto sell a security to the third party; ii) obligates the second party topay a first in-lieu-of dividend to the first party; iii) requires thefirst periodic marking of the security sold by the first party tomarket; and iv) obligates the first party to unwind the sale of thesecurity to the third party; and arranging a second agreement betweenthe second party and the third party, wherein the second agreement: i)obligates the third party to pay a second in-lieu-of dividend to thesecond party; ii) requires the second periodic marking of the securitysold by the first party to market; and iii) obligates the third party tounwind the sale of the security made by the first party.

In another example: (a) the first periodic marking of the security soldby the first party may comprise making a first marking payment from thefirst party to the second party or from the second party to the firstparty, depending upon the price of the security at the time the securityis marked-to-market; and (b) the second periodic marking of the securitysold by the first party may comprise making a second marking paymentfrom the second party to the third party or from the third party to thesecond party, depending upon the price of the security at the time thesecurity is marked-to-market.

In another example short exposure to the security may be provided to thethird party based upon the sale of the security by the first party.

In another example short exposure to the security may be provided to thethird party, through the second party, based upon the sale of thesecurity by the first party.

In another example at least one of: (a) the identity of the first partymay not be known to the third party; and (b) the identity of the thirdparty may not be known to the first party.

In another example the step of obligating the first party to unwind thesale of the security to the third party may include obligating the firstparty to repurchase the security from the third party and the step ofobligating the third party to unwind the sale of the security made bythe first party may include obligating the third party to resell thesecurity to the first party.

In another example the first party may retain the proceeds of the saleof the security.

In another example the method may further comprise obligating the firstparty to make a first payment to the second party and obligating thesecond party to make a second payment to the third party.

In another example each of the first payment and the second payment maybe paid periodically using a period selected from the group including:a) daily; b) weekly; c) monthly; d) quarterly; e) semi-annually; f)annually; and g) at the completion of the transaction.

In another example each of the first in-lieu-of dividend and the secondin-lieu-of dividend may equal at least part of the value of any dividendpaid on the security sold by the first party.

In another example each of the first in-lieu-of dividend and the secondin-lieu-of dividend may be paid periodically using a period selectedfrom the group including: a) daily; b) weekly; c) monthly; d) quarterly;e) semi-annually; f) annually; and g) at or about the period which iscorrelated with the payment of any dividend paid on the security sold bythe first party.

In another example each of the first marking and the second marking maybe carried out in U.S. dollars.

In another example each of the first marking and the second marking maybe carried out periodically using a period selected from the groupincluding: a) daily; b) weekly; c) monthly; d) quarterly; e)semi-annually; and f) annually.

In another example the security may be selected from the groupincluding: a) at least one fixed income security; b) at least onewarrant; c) at least one stock; d) at least one option; e) at least oneconvertible bond; f) at least one non-convertible bond; and g) at leastone future.

In another example the security may be selected from the groupincluding: a) at least one security associated with a single stockissue; b) at least one security associated with a basket of stocksformed of a plurality of stock issues; and c) at least one securityassociated with a stock index.

In another example the first party may have a long position in thesecurity.

In another example the first party may be an institutional investor.

In another example the third party may be a hedge fund.

In another embodiment a method for structuring a transaction carried outamong a first party, a second party, and a third party is provided,comprising: obligating the first party to sell a security to the thirdparty; obligating the second party to pay a first in-lieu-of dividend tothe first party; requiring the first periodic marking of the securitysold by the first party to market; obligating the third party to pay asecond in-lieu-of dividend to the second party; requiring the secondperiodic marking of the security sold by the first party to market; andobligating the first party and the third party to unwind the sale of thesecurity made by the first party.

In another example the method may further comprise obligating the firstparty to make a first payment to the second party and obligating thesecond party to make a second payment to the third party.

In another embodiment a method for structuring a transaction isprovided, comprising: obligating a first party to sell a security to asecond party; obligating the second party to pay an in-lieu-of dividendto the first party; periodically marking the security sold by the firstparty to market by periodically making a marking payment from the firstparty to the second party or from the second party to the first party,depending upon the price of the security at the time the security ismarked-to-market; and obligating the first party and the second party tounwind the sale of the security by obligating the first party torepurchase the security from the second party; wherein short exposure tothe security is provided to the second party based upon the sale of thesecurity by the first party.

In another embodiment a method for structuring a transaction isprovided, comprising: selling a security into a market by a first partyat a predetermined time; paying interest by the first party to a secondparty; paying a dividend equivalent by the second party to the firstparty; periodically marking the security sold by the first party; andarranging an agreement between the second party and a third party,wherein the agreement provides, to the third party, short exposure tothe security based upon the sale of the security by the first party.

In one example, the predetermined time may include a predeterminedcalendar date. The predetermined time may include a predetermined hour.For the purposes of the present application, the term “time” is intendedto include, but not be limited to, the point, period, or moment whensomething occurs, happens, begins, or ends (e.g., a particular hour,minute or second of the day; a particular calendar date; a particularday of the week; a particular week of the year; and a particular year).

The first party may retain the proceeds of the sale of the security.

The interest may be paid periodically using a period selected from thegroup including, but not limited to: a) daily; b) weekly; c) monthly; d)quarterly; e) semi-annually; and f) annually. In another embodiment, theinterest may be paid at the completion of the transaction.

The dividend equivalent may equal at least part of the value of anydividend paid on the security sold by the first party. The dividendequivalent may be paid periodically using a period selected from thegroup including, but not limited to: a) daily; b) weekly; c) monthly; d)quarterly; e) semi-annually; and f) annually. In another embodiment, thedividend equivalent may be paid at or about the time period which iscorrelated with the payment of the dividend.

The marking may also include requiring a payment from the first party tothe second party or from the second party to the first party, dependingupon the price of the security at the time the security is marked-tomarket. The marking may be carried out in U.S. dollars or other currencydeemed appropriate. The marking may be carried out periodically using aperiod selected from the group including: a) daily; b) weekly; c)monthly; d) quarterly; e) semi-annually; and f) annually.

The security may be selected from the group including: a) at least onefixed income security; b) at least one warrant; c) at least one stock;d) at least one option; e) at least one convertible bond; f) at leastone non-convertible bond; and g) at least one future.

The security may be selected from the group including: a) at least onesecurity associated with a single stock issue; b) at least one securityassociated with a basket of stocks formed of a plurality of stockissues; and c) at least one security associated with a stock index.

The first party may have a long position in the security.

In another embodiment a method for structuring a transaction isprovided, comprising: obligating a first party to sell a security into amarket at a predetermined time under a first agreement with a secondparty; and arranging a second agreement between the second party and athird party, wherein the second agreement provides, to the third party,short exposure to the security based upon the sale of the security bythe first party.

In one example, the first party may be an institutional investor. Thethird party may be a hedge fund.

The predetermined time may include a predetermined calendar date. Thepredetermined time may include a predetermined hour.

The first party may retain the proceeds of the sale of the security.

The security may be selected from the group including: a) at least onefixed income security; b) at least one warrant; c) at least one stock;d) at least one option; e) at least one convertible bond; f) at leastone non-convertible bond; and g) at least one future.

The security may be selected from the group including: a) at least onesecurity associated with a single stock issue; b) at least one securityassociated with a basket of stocks formed of a plurality of stockissues; and c) at least one security associated with a stock index.

The first party may have a long position in the security.

In another embodiment, method for structuring a transaction is provided,comprising: arranging a first agreement between a first party and asecond party, wherein the first agreement requires the first party tosell a security into a market; and arranging a second agreement betweenthe second party and a third party, wherein the second agreementprovides, to the third party, short exposure to the security based uponthe sale of the security by the first party made under the firstagreement.

In one example, first party may be an institutional investor. The thirdparty may be a hedge fund.

The first agreement may further comprise requiring the first party tosell the security into the market at a predetermined time. The firstagreement may further comprise requiring the first party to pay interestto the second party. The first agreement may further comprise requiringthe second party to pay a dividend equivalent to the first party. Thefirst agreement may further comprise requiring periodic marking of thesecurity sold by the first party.

The predetermined time may include a predetermined calendar date. Thepredetermined time may include a predetermined hour.

The first party may retain the proceeds of the sale of the security.

The interest may be paid periodically using a period selected from thegroup including, but not limited to: a) daily; b) weekly; c) monthly; d)quarterly; e) semi-annually; and f) annually In another embodiment, theinterest may be paid at the completion of the transaction.

The dividend equivalent may equal at least part of the value of anydividend paid on the security sold by the first party. The dividendequivalent may be paid periodically using a period selected from thegroup including, but not limited to: a) daily; b) weekly; c) monthly; d)quarterly; e) semi-annually; and f) annually. In another embodiment, thedividend equivalent may be paid at or about the time period which iscorrelated with the payment of the dividend.

The marking may also include requiring a payment from the first party tothe second party or from the second party to the first party, dependingupon the price of the security at the time the security is marked-tomarket. The marking may be carried out in U.S. dollars or other currencydeemed appropriate. The marking may be carried out periodically using aperiod selected from the group including: a) daily; b) weekly; c)monthly; d) quarterly; e) semi-annually; and f) annually.

The security may be selected from the group including: a) at least onefixed income security; b) at least one warrant; c) at least one stock;d) at least one option; e) at least one convertible bond; f) at leastone non-convertible bond; and g) at least one future.

The security may be selected from the group including: a) at least onesecurity associated with a single stock issue; b) at least one securityassociated with a basket of stocks formed of a plurality of stockissues; and c) at least one security associated with a stock index.

The first party may have a long position in the security.

In another embodiment a method for structuring a transaction isprovided, comprising: arranging a first agreement between a first partyand a second party, wherein the first agreement requires the first partyto sell a security into a market at a predetermined time; payinginterest by the first party to the second party; paying a dividendequivalent by the second party to the first party; periodically markingthe security sold by the first party; and arranging a second agreementbetween the second party and a third party, wherein the second agreementprovides, to the third party, short exposure to the security based uponthe sale of the security by the first party made under the firstagreement.

In one example, the first party may be an institutional investor. Thethird party may be a hedge fund.

The predetermined time may include a predetermined calendar date. Thepredetermined time may include a predetermined hour.

The first party may retain the proceeds of the sale of the security.

The interest may be paid periodically using a period selected from thegroup including: a) daily; b) weekly; c) monthly; d) quarterly; e)semi-annually; and f) annually.

The dividend equivalent may equal at least part of the value of anydividend paid on the security sold by the first party. The dividendequivalent may be paid periodically using a period selected from thegroup including: a) daily; b) weekly; c) monthly; d) quarterly; e)semi-annually; and f) annually.

The marking may also include requiring a payment from the first party tothe second party or from the second party to the first party, dependingupon the price of the security at the time the security is marked-tomarket. The marking may be carried out in U.S. dollars or other currencydeemed appropriate. The marking may be carried out periodically using aperiod selected from the group including: a) daily; b) weekly; c)monthly; d) quarterly; e) semi-annually; and f) annually.

The security may be selected from the group including: a) at least onefixed income security; b) at least one warrant; c) at least one stock;d) at least one option; e) at least one convertible bond; f) at leastone non-convertible bond; and g) at least one future.

The security may be selected from the group including: a) at least onesecurity associated with a single stock issue; b) at least one securityassociated with a basket of stocks formed of a plurality of stockissues; and c) at least one security associated with a stock index.

The first party may have a long position in the security.

Referring now to FIG. 3, a block diagram of a Short Synthetic MarketAccess Trade (“SSMAT”) according to another embodiment of the presentinvention is shown. While there are numerous markets in which actualshort selling is not possible (whether due to legal/regulatory issues,tax issues, cost, lack of stock transfer mechanisms, and/or reputationalconcerns that relate either to short selling or borrowing stock), theSSMAT of the present embodiment may permit the generation of shortsynthetic exposure (e.g., financial exposure that essentially mirrorsthe financial exposure generated by a short sale). Moreover, althoughthis example describes a Hedge Fund, it is understood that the presentinvention applies to any counterpart desiring to gain a short exposure(e.g. individual or group).

In general terms, the SSMAT of the present embodiment is essentially aback-to-back cash settled derivatives transaction or“contracts-for-differences” (“CFD”), where a “long” investor sells stockto a counterpart desiring to gain a short exposure (and the investorrepurchases the stock at a future time).

More particularly, as seen in the section of FIG. 3 labeled I, a CFDWriter 301 writes a CFD 303 (which could be a non-collateral CFD, forexample) with an Investor 305 to arrange the sale of Stock 307 byInvestor 305 and to replace the long exposure of Investor 305 withsynthetic exposure (i.e., the synthetic exposure may be financialexposure that essentially mirrors the financial exposure generated by along position in Stock 307).

Further, as seen in the section of FIG. 3 labeled II, CFD Writer 301writes CFD 309 (which could be a non-collateral CFD, for example) withHedge Fund 311 to pass to Hedge Fund 311 the short synthetic exposuregenerated by CFD 303.

Still referring to FIG. 3, the mechanics of an SSMAT transactionaccording to the present embodiment may operate as follows:

-   -   a) Hedge Fund 311 (or its agent, collectively referred to as        “Hedge Fund 311”) contacts CFD Writer 301 (or its agent,        collectively referred to as “CFD Writer 301”) for short        synthetic exposure. To minimize the number of transactions, CFD        Writer 301 may ask Hedge Fund 311 what its maximum expected        short exposure is. The “fee” and other terms of CFD 309 are        agreed upon, including term (e.g., expiration date and/or time)        and any early termination penalties.    -   b) CFD Writer 301 finds a “lending” counterpart (i.e., Investor        305 (or its agent, collectively referred to as “Investor 305”)).        Once identified, CFD Writer 301 and the counterpart negotiate        the terms of CFD 303, including the rate and period of interest        to be paid by the counterpart, the time period (e.g. date and/or        time) of the sale, the term (e.g., expiration date and/or time),        and any early termination penalties.    -   c) CFD Writer 301 contacts Hedge Fund 311 to convey the date and        time of the proposed sale (and Hedge Fund 311 may be given the        option of approving or disapproving). If Hedge Fund 311        approves, the final share quantity represented by CFD 309 may be        determined by the share quantity sold by the “lending”        counterpart. Further, the initial price of CFD 309 (i.e., the        “strike” price) may be set to the average price of the shares        sold. In markets that allow “crossing”, CFD Writer 301 may        provide Hedge Fund 3511 with the option to cross (or Hedge Fund        311 may be required to cross). In one example, a “crossing” may        occur when a broker receives two opposite orders that it can        match. If, for example, the broker receives a buy order for        100,000 shares of a stock and also receives a sell order for        100,000 shares of the same stock, then in certain exchanges the        broker can execute a cross trade between the buy and the sell        and then report the transaction to the exchange. The same        option/requirement to cross may be applied to the transaction        “unwind”. Where crossing is not required and/or possible, Hedge        Fund 311 may be notified of the proposed time of the sale by the        “lending” counterpart to allow the Hedge Fund 511 to provide the        natural buy-side of the sale. Again, the same may occur for the        “unwind” portion of the transaction. Further still, Hedge Fund        311 may adjust its short exposure by either buying or selling        stock in the market. Moreover, CFD 309 may be booked into an        account associated with Hedge Fund 311, transactions may appear        on any account statements, marking may be performed periodically        (e.g., daily), and a margining process may be provided. It is        noted that hedge funds often prefer to “short” at their own        discretion, and large market-open/close sales could        significantly impact pricing. Thus, CFD Writer 301 could urge        both counterparts to execute through CFD Writer 301 itself, so        that CFD Writer 301 would have maximum control over the        transaction.

With regard to the cash flow between the parties shown in Section I ofFIG. 5, it is noted that the cash flow may be structured tosubstantially mirror the cash flow of the traditional stock loantransaction of FIG. 1.

Referring now to FIG. 4, early unwinding of the SSMAT transaction of thepresent embodiment will now be discussed.

If Hedge Fund 401 chooses to unwind prior to the agreed upon date and/ortime then there may be two options:

-   -   1) CFD Writer 403 may terminate CFD 405 (i.e., the one facing        the Investor 407). If this is done then CFD Writer 403 may be        assessed a penalty owed to Investor 407 (such penalty could be        passed on to Hedge Fund 401).    -   2) CFD Writer 403 may purchase Stock 409 and terminate the        second CFD 411 (i.e., the one facing Hedge Fund 401) at the        purchase cost. CFD Writer 403 could then write a third CFD (not        shown) by selling the long stock position. It is noted that this        option introduces some incremental risk to CFD Writer 403.

On the other hand, if Investor 407 chooses to unwind prior to the agreedupon date and/or time, then Investor 407 may be required to: a) providea one settlement cycle recall period before CFD 405 is unwound; and b)pay a penalty to CFD Writer 403 (which may be passed on to Hedge Fund401).

It is noted that in some instances a potential Investor (e.g., anInstitutional Investor) may not have the appropriate systems andinfrastructure in place to participate in a transaction according to thepresent invention. That is, the potential Investor may not have thesystems and infrastructure in place to track mark-to-market, dividendequivalent, and interest payments, for example. Therefore, in anotherembodiment of the present invention an agent possessing or having accessto the appropriate systems and infrastructure may be utilized to “standin the shoes of” the potential Investor.

Further, it is noted that with regard to participation by certaininvestors (e.g., Institutional Investors), traditional derivativetransactions and/or financing transactions may be governed by variousmargin regulations and “customer protection” regulations (e.g., Rule15a-6). In this regard, it is believed that when the CFD's of theinstant invention are implemented as non-securities such marginregulations and “customer protection” regulations would not apply (thusproviding broader investment options to such investors).

By operating as described above, the present invention may provide amechanism through which a CFD Writer is not involved in the cash side ofa transaction (i.e., the CFD Writer is not actually buying or sellingstock, as a traditional broker might during a traditional transaction).

Further, when the CFD Writer is not involved in the cash side of atransaction, the present invention may provide a mechanism through whichthe CFD Writer is not exposed to foreign exchange risk, as a traditionalbroker might be during a traditional transaction (except to the extentthat the CFD Writer chooses to hedge the synthetic versus stock).

Further, when the CFD Writer is not involved in the cash side of atransaction, the present invention may provide a mechanism through whichthe CFD Writer is not exposed to the risk of being prevented fromtrading a security, as a traditional broker might be during atraditional transaction.

Further, when the CFD Writer is not involved in the cash side of atransaction, the present invention may provide a mechanism through whichthe balance sheet of the CFD Writer is not significantly impacted, ascan occur to a traditional broker during a traditional transaction.

Further, when the CFD Writer is not involved in the cash side of atransaction, the present invention may provide a mechanism through whichthe CFD Writer is not exposed a significant “reg-cap” and “cash-cap”impact, as can occur to a traditional broker during a traditionaltransaction.

Further, when the CFD between the Investor and the CFD Writer ismarked-to-market periodically (e.g., daily), the CFD Writer does nottake on significant mark-to-market exposure, as can occur to atraditional broker during a traditional transaction.

Further, the party seeking to acquire the short synthetic exposure(e.g., a hedge fund) may be given the opportunity to “cross” or be thenatural buy side to the Investor sale, the hedge fund may be able todictate when to sell shares to provide the short synthetic exposure.

Further, the present invention provides a mechanism through which aninvestor may embed transaction taxes, stamp taxes, and sales fees andcommissions into a CFD and such costs could be passed on to a partyacquiring the short synthetic exposure (e.g., a hedge fund).

Further, the present invention provides a mechanism through which aninvestor may “see” a cash flow which essentially mirrors the cash flowof a traditional securities lending transaction.

Referring now to FIG. 5, a block diagram of a synthetic loan transaction(“SLoT”) mechanism according to an embodiment of the present inventionis shown. This embodiment of the SLoT mechanism will hereinafter bereferred to as an “agency type” SLoT mechanism. This “agency type” SLoTmechanism is appropriate for use in the event Lender 501 is nottax-exempt and/or desires to utilize a tax structure which, it isbelieved, would not trigger U.S. level capital gains tax for U.S.investors. Further, the “agency type” SLoT mechanism of this embodimentmay be used to synthetically replicate the economics of a securitieslending transaction. As such, the “agency type” SLoT mechanism of thisembodiment may be used by an investor to: (a) fund a long position;and/or (b) synthetically lend one or more securities; and/or (c)leverage its portfolio of securities

Still referring to FIG. 5, it is seen that the “agency type” SLoTtransaction of this embodiment may operate as follows. Agreement 503 maybe used to bind Lender 501 (e.g., an institutional investor) andBorrower 505 (e.g. a Hedge Fund) through Agent 507 (e.g., abroker/dealer or a bank (such as an investment bank, for example)).Agreement 503 may be a single agreement binding Lender 501 and Borrower505 through Agent 507 or Agreement 503 may comprise two agreements, eachbinding one of Lender 501 and Borrower 505 through Agent 507. Further Inone example, which example is intended to be illustrative and notrestrictive, the identities of Lender 501 and Borrower 505 may remainundisclosed to one another. In another example, which example isintended to be illustrative and not restrictive, the identities of eachof Lender 501 and Borrower 505 may be disclosed to one another (or theidentity of only one party may be disclosed to the other). In any case,Agent 507 may provide servicing for Lender 501 (e.g., responsibility fora significant portion of the operational tasks related to thetransaction).

More particularly, the mechanics of an “agency type” “SLOT” transactionaccording to one specific example, which example is intended to beillustrative and not restrictive, may operate as follows:

a) Agent 507 and the Lender 501 may agree that Lender 501 sell (and thenrepurchase therefrom) a desired number of shares of Stock 509 to aninterested Borrower 507 on terms satisfactory to the parties. Such termsmay include, but are not limited to, a “fee” and other terms such as thetransaction expiration date and/or time, any early termination clauses,and the date and time of the proposed sale by Lender 501 of Stock 509.Further still, Agreement 503 may stipulate that the execution price ofthe sale of Stock 509 by Lender 501 establishes the original mark pricefor the purposes of the present embodiment.

b) Agent 507 and Borrower 505 may agree that Borrower 505 will be soldStock 509 on the terms agreed to by Lender 501.

c) On the sale date Lender 501 may report to Agent 707 the averageexecution price of the sale of the share(s). If the sale is executedthrough Agent 507 then there may be no need to report.

d) On a periodic basis (e.g., daily) Agent 507 may contact Lender 501and/or Borrower 505 to confirm and transfer any required Payments 511(e.g., mark-to-market amounts, other payments, in-lieu-of dividends,and/or fees).

e) On the termination date of the transaction, Lender 501 repurchasesStock 509 from Borrower 505. Lender 501 may report to Agent 507 therepurchase price (e.g., average execution price, market open, marketclose, or Volume Weighted Average Price “VWAP”)), which may be used asthe final mark-to-market price for the purposes of unwinding thetransaction. If the purchase is executed through Agent 507 then theremay be no need to report. Of note, an example of VWAP is as follows: If100 shares were sold at 20, 200 shares at 25, and 300 shares at 30,VWAP=[(100×20)+(2000×25)+(300×30)]/[100+200+300]=26.67.

f) If Lender 501 or Borrower 505 seeks early termination of thetransaction then such party seeking early termination may be required topay a penalty fee to the other in a pre-agreed amount. Followingtraditional stock loan conventions, the early termination date may beone settlement cycle from the date of notification (the date and time ofthe early termination following the notification may, of course, be anyagreed date and time.

Of note, in one embodiment of the present invention the “agency type”SLoT mechanism must involve crossing transactions between Lender 501 andBorrower 505 both at the onset and unwinding of the transaction.

Further still, in one embodiment of the present invention there may be aform of Indemnification 513 that Agent 507 grants Lender 501 againstcertain losses that Lender 501 may incur due to default on the part ofBorrower 505

Further still, the execution of mark-to-markets, payments of in-lieu-ofdividends, recall methodology, and calculation of fees, rebates, orother payments may be carried out in a manner similar to that utilizedin the traditional stock loan transaction of FIG. 1.

Referring now to FIG. 6, a block diagram of another “SLoT” mechanismaccording to an embodiment of the present invention is shown. Thisembodiment of the SLoT mechanism will hereinafter be referred to as a“principal type” SLoT mechanism. This “principal type” SLoT mechanism isappropriate for use in the event Lender 601 is tax-exempt, for example.Further, the “principal type” SLoT mechanism of this embodiment may beused to synthetically replicate the economics of a securities lendingtransaction. As such, the “principal type” SLoT mechanism of thisembodiment may be used by an investor to: (a) fund a long position;and/or (b) synthetically lend one or more securities; and/or (c)leverage its portfolio of securities.

Still referring to FIG. 6, it is seen that the “principal type” SLoTtransaction of this embodiment may operate as follows. First Agreement603 may be used to bind Lender 601 (e.g., an institutional investor) andIntermediary 605 (e.g., a broker/dealer or a bank (an investment bank,for example) and Second Agreement 607 may be used to bind Intermediary605 and Borrower 609 (e.g. a Hedge Fund). In one example, which exampleis intended to be illustrative and not restrictive, the identities ofLender 601 and Borrower 609 may remain undisclosed to one another. Inanother example, which example is intended to be illustrative and notrestrictive, the identities of each of Lender 601 and Borrower 609 maybe disclosed to one another (or the identity of only one party may bedisclosed to the other). In any case, Intermediary 605 may provideservicing for the transactions for one or both of Lender 601 andBorrower 609 (e.g., responsibility for a significant portion of theoperational tasks related to the transactions).

More particularly, the mechanics of a “principal type” “SLoT”transaction according to one specific example, which example is intendedto be illustrative and not restrictive, may operate as follows:

a) Lender 601 and Intermediary 605 may agree that Lender 601 sell (andthen repurchase therefrom) a desired number of share(s) of Stock 611 toIntermediary 605 on terms satisfactory to the parties. Such terms mayinclude, but are not limited to, a “fee” and other terms such as thetransaction expiration date and/or time, any early termination clauses,and the date and time of the proposed sale by Lender 601 of Stock 611.Further still, Agreement 603 may stipulate that the execution price ofthe sale of Stock 611 by Lender 601 establishes the original mark pricefor the purposes of the present embodiment.

b) Borrower 609 and Intermediary 605 may agree that Intermediary 605sell (and then repurchase therefrom) Stock 611 sold by Lender 601 toBorrower 609 on terms satisfactory to the parties. Such terms mayinclude, but are not limited to, a “fee” and other terms such as thetransaction expiration date and/or time, any early termination clauses,and the date and time of the proposed sale by Lender 601 and/orIntermediary 605 of Stock 611. Further still, Agreement 607 maystipulate that the execution price of the sale of Stock 611 by Lender601 establishes the original mark price for the purposes of the presentembodiment

c) On the sale date Lender 601 may report to Intermediary 605 theaverage execution price of the sale of the share(s). If the sale isexecuted through Intermediary 605 then there may be no need to report.Further, Intermediary 605 may report to Borrower 607 the averageexecution price of the sale of the share(s)

d) On a periodic basis (e.g., daily) Intermediary 605 may contact Lender601 to confirm and transfer any required Payments 613 (e.g.,mark-to-market amounts, other payments, in-lieu-of dividends, and/orfees). Further, on a periodic basis (e.g., daily) Intermediary 605 maycontact Borrower 609 to confirm and transfer any required Payments 815(e.g., mark-to-market amounts, other payments, in-lieu-of dividends,and/or fees).

e) In the case of a “cash settled” transaction, the transaction mayunwind in a manner similar to that of a “buy-in”—where “cash collateral”is used by Lender 601 to repurchase Stock 611, and any excess amount ofcash is returned to Borrower 609 or, in the case where there isinsufficient cash, Borrower 609 may be required to make Lender 601whole. On the other hand, in the case of a “stock settled” transaction,crossing trades may be executed similar to that described for the“agency type” SLoT mechanism. In either case, the method of “settlement”may be set at the onset of the transaction.

f) If any party seeks early termination of the transaction then suchparty seeking early termination may be required to pay a penalty fee toone or both of the other parties in a pre-agreed amount. Followingtraditional stock loan conventions, the early termination date may beone settlement cycle from the date of notification (the date and time ofthe early termination following the notification may, of course, be anyagreed date and time).

Of note, in one embodiment of the present invention the “principal type”SLoT mechanism must involve crossing transactions among Lender 601,Intermediary 605, and Borrower 609 both at the onset and unwinding ofthe transaction.

Further still, the execution of mark-to-markets, payments of in-lieu-ofdividends, recall methodology, and calculation of fees, and otherpayments may be carried out in manner similar to that utilized in thetraditional stock loan transaction of FIG. 1.

In another embodiment of the present invention the Agent or Intermediarymay be a credit intermediary and/or may shelter the Lender from theBorrower (in terms of risk, for example).

In another embodiment of the present invention a mechanism may beprovided to essentially mimic a traditional stock loan (e.g., for taxpurposes).

In another embodiment of the present invention a mechanism may beprovided for arranging an essentially simultaneous sale and purchase ofan asset (e.g., a security such as a stock).

In another embodiment of the present invention a mechanism may beprovided to unwind a transaction between a number of parties. Suchunwinding may occur between the same counterparties which had interactedwith one another.

In another embodiment of the present invention a mechanism may beprovided to permit a “tax efficient” transaction (e.g., a transactionwhich will not trigger adverse U.S. tax consequences such as capitalgains under the appropriate circumstances). It is believed that such atax efficient transaction may be structured as a “loan” from a U.S. taxperspective, wherein at least a lender and a borrower agree to reversethe “loan” at a future point in time.

In another embodiment of the present invention a mechanism may beprovided for structuring a stock “loan” agreement, wherein asset(s) thatare transferred are, at a later date, transferred back. Such a stock“loan” may comprise a “loan” of one or more assets (such as one or morestocks) against collateral (which may or may not be a set amount),wherein the “loan” is reversed at a future time (which time may or maynot be a predetermined future time).

In another embodiment of the present invention a mechanism may beprovided to structure a transaction as a “loan” (under which it isbelieved U.S. capital gains taxes would not apply), rather than as asale (under which it is believed U.S. capital gains taxes would apply).

While a number of embodiments of the present invention have beendescribed, it is understood that these embodiments are illustrativeonly, and not restrictive, and that many modifications may becomeapparent to those of ordinary skill in the art. For example, the presentinvention may be utilized with a transaction involving one or moreshares of a security associated with a single entity, one or more sharesof a security associated with a plurality of entities (e.g., a “basket”of securities), or one or more shares of a security associated with anindex. Further still, the present invention may be used with multipleLenders (e.g., multiple Investors) and/or multiple Borrowers (e.g.,multiple Hedge Funds), and/or multiple Intermediaries (e.g., multiplebroker/dealers or multiple investment banks) and/or multiple Agents(e.g., multiple broker/dealers or multiple investment banks). Forexample, a number of Investors may be used to provide a desired shortsynthetic exposure to one Hedge Fund (possibly through one or moreIntermediaries and/or Agents), or a number of Hedge Funds may receivethe short synthetic exposure provided by one Investor (possibly throughone or more Intermediaries and/or Agents), or a number of Investors maybe used to provide a desired short synthetic exposure to a number ofHedge Funds (possibly through one or more Intermediaries and/or Agents).Further still, the CFD Writer may pre-arrange a number of CFD's with oneor more Investors to have an “inventory” of such ready to match-up withone or more counterpart Hedge Fund CFD's when desired. Further still,the CFD Writer may pre-arrange a number of CFD's with one or more HedgeFunds to have a “inventory” of such CFD's ready to match-up with one ormore counterpart Investor CFD's when desired. Further still, the CFD'sof the present invention and/or the exposure (“long” and/or short”)generated by the CFD's of the present invention may be placed in“inventory” (maintained by the CFD Writer and/or another entity, such asa clearinghouse) and such inventory may be searched and/or accessedand/or “booked” (e.g., sold) by an appropriate computer system.Likewise, the Agent and/or Intermediary may maintain an “inventory” ofagreements. Further still, the present invention may be utilized for taxarbitrage. Further still, the present invention may be used in a marketin which a security can not be sold short (e.g., an “emerging market”such as Taiwan or Indonesia) and/or in a market in which securitieslending is not available or possible. Further still, a transactionaccording to the present invention may require specific documentation,such as a Master International Securities Dealers Association “ISDA”Agreement, a CFD Annex to the ISDA Agreement, and a short formConfirmation for each CFD, for example. Further still, while the“strike” price of the CFD (and the repurchase price thereof) have beendescribed as possibly being the average execution price (of a number ofshares of stock), the price could alternatively be the price of a singleshare of stock (if only one share is sold), the weighted average priceof a number of shares of stock (wherein the weighting factor is anydesired weighting factor), the highest price of any of the shares sold,the lowest price of any of the shares sold, or any other desiredcalculated value, for example. Further still, while the price of thestock (and the repurchase price thereof) have been described as possiblybeing the average execution price (of a number of shares of stock), theprice could alternatively be the price of a single share of stock (ifonly one share is sold), the weighted average price of a number ofshares of stock (wherein the weighting factor is any desired weightingfactor), the highest price of any of the shares sold, the lowest priceof any of the shares sold, or any other desired calculated value, forexample. Further still, the present invention may be applied to anyvenue involving the buying and/or selling of one or more assets (i.e., amarket). Further still, the mark-to-market calculation and payment, thedividend equivalent payment, the in-lieu-of dividend payment, theinterest payment, and any other payment(s) according to the presentinvention may each be carried out at any desired time, such as atpre-arranged calendar dates and/or times, and/or periodically (e.g.,daily, weekly, monthly, quarterly, semi-annually, or annually), and/oressentially continuously (e.g., by the split-second, by the second, bythe minute, or by the hour in a “real-time” or quasi “real-time”manner). Further still, the CFD Writer and/or the Intermediary and/orthe Agent may pre-qualify investors and/or hedge funds. Thepre-qualification may include determining and/or setting up creditlines. Further still, the early termination date of the CFD and/or“loan” may be one settlement cycle from the date of notification, or theearly termination date may be any desired time period after thenotification. Further still, the “loan” may have no predetermined startor termination date. Further still, the present invention may be usedwith any desired asset(s), including, but not limited to, one or moresecurities or non-securities (e.g., real estate). Further still, thepresent invention may be used by any party having a long position in anasset and/or any party desiring to acquire short exposure to the assetand/or any intermediary and/or agent. For example, the party may be, butnot limited to, an individual investor, a corporation, a charitableorganization, an investment fund (e.g., a mutual fund), a lendinginstitution, a broker, a dealer, and/or a trust. Further still, thesecurity sold by the first party may be a currency future, for example.Further still, in one example the Intermediary may be Boston GlobalAdvisors. Further still, while the present invention has been describedprincipally with respect to a method for structuring a transaction, acorresponding software program and/or system may of course be utilizedto structure a transaction, and/or to help to structure a transaction,and/or to carry out one or more steps of the transaction, and/or to helpto carry out one or more steps of the transaction.

1-21. (canceled)
 22. A method for structuring a transaction carried outamong a first party, a second party, and a third party, comprising:arranging a first agreement between the first party and the secondparty, wherein the first agreement: i) obligates the first party to sella security to the third party; ii) obligates the second party to pay afirst in-lieu-of dividend to the first party; iii) requires the firstperiodic marking of the security sold by the first party to market; andiv) obligates the first party to unwind the sale of the security to thethird party; and arranging a second agreement between the second partyand the third party, wherein the second agreement: i) obligates thethird party to pay a second in-lieu-of dividend to the second party; ii)requires the second periodic marking of the security sold by the firstparty to market; and iii) obligates the third party to unwind the saleof the security made by the first party.
 23. The method of claim 22)wherein: (a) the first periodic marking of the security sold by thefirst party comprises making a first marking payment from the firstparty to the second party or from the second party to the first party,depending upon the price of the security at the time the security ismarked-to-market; and (b) the second periodic marking of the securitysold by the first party comprises making a second marking payment fromthe second party to the third party or from the third party to thesecond party) depending upon the price of the security at the time thesecurity is marked-to-market.
 24. The method of claim 23, wherein shortexposure to the security is provided to the third party based upon thesale of the security by the first party.
 25. The method of claim 24,wherein short exposure to the security is provided to the third party,through the second party, based upon the sale of the security by thefirst party.
 26. The method of claim 22, wherein at least one of: (a)the identity of the first party is not known to the third party; and (b)the identity of the third party is not !mown to the first party.
 27. Themethod of claim 22, wherein the step of obligating the first party tounwind the sale of the security to the third party includes obligatingthe first party to repurchase the security from the third party and thestep of obligating the third party to unwind the sale of the securitymade by the first party includes obligating the third party to resellthe security to the first party.
 28. The method of claim 22, wherein thefirst party retains the proceeds of the sale of the security.
 29. Themethod of claim 22, further comprising obligating the first party tomake a first payment to the second party and obligating the second partyto make a second payment to the third party.
 30. The method of claim 29,wherein each of the first payment and the second payment is paidperiodically using a period selected from the group including: a) daily;b) weekly; c) monthly; d) quarterly; e) semi-annually; f) annually; andg) at the completion of the transaction.
 31. The method of claim 22,wherein each of the first in-lieu-of dividend and the second in-lieu-ofdividend equals at least part of the value of any dividend paid on thesecurity sold by the first party.
 32. The method of claim 22, whereineach of the first in-lieu-of dividend and the second in-lieu-of dividendis paid periodically using a period selected from the group including:a) daily; b) weekly; c) monthly; d) quarterly; e) semi-annually; f)annually; and g) at or about the period which is correlated with thepayment of any dividend paid on the security sold by the first party.33. The method of claim 22, wherein each of the first marking and thesecond marking is carried out in U.S. dollars.
 34. The method of claim22, wherein each of the first marking and the second marking is carriedout periodically using a period selected from the group including: a)daily; b) weekly; c) monthly; d) quarterly; e) semi-annually; and f)annually.
 35. The method of claim 22, wherein the security is selectedfrom the group including: a) at least one fixed income security; b) atleast one warrant; c) at least one stock; d) at least one option; e) atleast one convertible bond; f) at least one non-convertible bond; and g)at least one future.
 36. The method of claim 22, wherein the security isselected from the group including: a) at least one security associatedwith a single stock issue; b) at least one security associated with abasket of stocks formed of a plurality of stock issues; and c) at leastone security associated with a stock index.
 37. The method of claim 22,wherein the first party has a long position in the security.
 38. Themethod of claim 22, wherein the first party is an institutionalinvestor.
 39. The method of claim 22, wherein the third party is a hedgefund.
 40. A method for structuring a transaction carried out among afirst party, a second party, and a third party, comprising: obligatingthe first party to sell a security to the third party; obligating thesecond party to pay a first in-lieu-of dividend to the first party;requiring the first periodic marking of the security sold by the firstparty to market; obligating the third party to pay a second in-lieu-ofdividend to the second party; requiring the second periodic marking ofthe security sold by the first party to market; obligating the firstparty and the third party to unwind the sale of the security made by thefirst party; and obligating the first party to make a first payment tothe second party and obligating the second party to make a secondpayment to the third party.
 41. (canceled)
 42. A method for structuringa transaction, comprising: obligating a first party to sell a securityto a second party; obligating the second party to pay an in-lieu-ofdividend to the first party; periodically marking the security sold bythe: first party to market by periodically making a marking payment fromthe: first party to the second party or from the second party to thefirst party, depending upon the price of the security at the time thesecurity is marked-to-market; and obligating the first party and thesecond party to unwind the sale of the security by obligating the firstparty to repurchase the security from the second party; wherein shortexposure to the security is provided to the second party based upon thesale of the security by the first party.